CARPE DIEM

Professor Mark J. Perry's Blog for Economics and Finance

Saturday, June 30, 2012

Boys vs. Girls on the 2010 SAT Test

If you haven't already seen it, here's another look at my December 2010 animation "Boys vs. Girls on the 2010 SAT Test," where I have a little fun trying to debunk "The Janet Hyde" at the University of Wisconsin, who claims there "There just aren't gender differences anymore in math performance. So parents and teachers need to revise their thoughts about this."

And here are the results for the 2011 Math SAT Test - the mean score for high school boys was 531 compared to a mean of 500 for girls; and 9,120 boys had perfect scores of 800 compared to 4,683 girls, for a M:F ratio of 1.95-to-1.

Markets in Everything: ND Oil Patch Tours for $325

Grand Forks Herald -- "For people who drive through North Dakota’s oil country and wonder what
the heck they’re looking at, a new tour will erase some of the mystery.
The Bakken Field Tours, which launch in July, will give people a chance to take an 11-hour bus tour through the Oil Patch that features an
explanation of oil and gas development. The night prior to the tour, participants will get a three-hour
educational workshop that lays the groundwork for what they’ll see on
the tour. The tours will cost $325, not including the price of a hotel room."

U.S. Restaurants Show Expansion Again in May

"The outlook for the restaurant industry remained positive for the months ahead, as the Restaurant Performance Index (RPI) remained above 100 in May. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.4 in May, down 0.2 percent from April’s level of 101.6 (red line in chart). Despite the decline, May represented the seventh consecutive month that the RPI stood above 100, which signifies expansion in the index of key industry indicators. Restaurant operators reported positive same-store sales in May for the 12th consecutive month.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 102.0 in May – down slightly from April’s level of 102.2 (blue line in chart). May represented the ninth consecutive month that the Expectations Index stood above 100, which signifies a positive outlook among restaurant operators for business conditions in the coming months."

MP: The RPI has remained in a range between 101 and 102 for the last six months, and the Expectations Index has remained above 102 over that same period, which is consistent with the ranges and levels for those two indexes back in the pre-recession time frame in late 2006 and early 2007. This is an indication that the U.S. industry has made a full recovery from the recession and the industry's performance has returned to pre-recession levels.

More evidence of an improving outlook for U.S. restaurants is provided by Census data showing that sales for "Food Services and Drinking Places" improved 7.4% in May from a year ago, following an annual increase of 8.5% in April.
After being flat for most of 2008 and 2009, sales at "Food Services and Drinking Places" in May were running 17% above the June 2009 level when the recession
officially ended. Further, sales at "Full Service Restaurants" were up by 8.7% year-over-year in April (data not yet available for May).

All of the key data suggest that the restaurant industry has made a full
recovery from the recession and is now operating back above
pre-recession levels for inflation-adjusted sales. Regardless of how
consumers answer confidence survey questions, the strong improvements in
restaurant sales and the RPI in recent months would indicate that
tracking actual consumers spending on restaurant meals is reflecting a
high level of consumer confidence.

The NBA and WNBA Get an A+ for "Racial Hiring Practices" Despite Significant Racial Disparities?

The University of Central Florida praises the NBA for its "commitment to racial equality," despite this significant evidence of racial inequality:

Share of U.S. Population, 2011

Share of NBA, 2012

Share of WNBA, 2011

Blacks

13.1%

<

78%

63%

Whites

63.4%

>

17%

21%

Hispanics

16.7%

>

4%

3%

Asians

5.0%

>

3%

0%

Based on the data in the chart above, what letter grade would you assign for the "racial hiring practices" of the NBA and WNBA? When determining your grade, you would obviously consider the fact that the racial shares of professional basketball players diverge significantly from the racial makeup of the U.S. population, suggesting that there might be some racial bias or discrimination when hiring players. For example, blacks were 13.1% of the U.S. population in 2011, but were significantly overrepresented in professional basketball: 78% of NBA players (2012) and 63% of WNBA players (2011) are black. Whites are 63.4% of the U.S. population, but are significantly
underrepresented in pro basketball: only 17% of NBA and 21% of WNBA players are white.
Likewise, Hispanics and Asians are significantly underrepresented in both the NBA and WNBA compared to their shares of the U.S. population, and Asians have no
representation in the WNBA.

When
determining your letter grade for the "racial hiring practices" of the NBA and WNBA consider what would
happen if some of the outcomes were reversed, e.g. blacks are 13.1% of
the population, but make up only say 5% of some outcome like managerial positions, boards of directors, city payrolls for
police or fire workers, teaching positions, coaching positions, etc. In most cases of
gender or racial under-representation, the goal of advocacy groups or
government agencies is often perfect statistical gender or racial
parity based on shares of the general population (see example here of perfect gender parity being the stated goal of the Commerce Department for STEM jobs and college majors).

Given the statistical outcomes above where whites are underrepresented in the NBA by a factor of 3.7 times compared to their share of the general population (17% vs. 63.4%) and blacks are overrepresented in the NBA by a factor of 6 times (78%
vs. 13%) compared to their share of the general population, it would
seem that the logical conclusion is that the racial outcomes for
the NBA and WNBA depart dramatically from the standard measures of
diversity and the racial hiring practices of the NBA and WNBA should earn a letter grade of F. When women or minorities are underrepresented in some
outcome (STEM jobs, college enrollment, boards of directors, executive positions, etc.), efforts are made to
"increase diversity" by increasing the gender or racial shares of
various outcomes to the gender or racial shares of the overall
population.

This
seems pretty Orwellian in the sense that "all racial and gender groups
are equal and important for purposes of diversity, but some groups are apparently
more equal than others." For example, when women are underrepresented
in STEM fields, the gender activists invoke the
"disparity-proves-discrimination dogma" and mobilize resources and
support to address the gender disparity. But when women are
overrepresented in earning college degrees (140 females per 100 men), or
7 out of 11 graduate degrees, or outnumber male veterinarians by more
than 3:1, those disparities, and the "disparity-proves-discrimination"
dogma are ignored.

Likewise, now that whites,
Hispanics, and Asians are significantly underrepresented in the NBA and
WNBA, the "disparity-proves-discrimination" dogma is abandoned and a new
mantra is adopted by the "Institute for Diversity and Ethics in Sport":
"racial disparities-prove-success" as long as blacks are over-represented and whites, Asians and
Hispanics are under-represented, and deserve letter grades of A+. In fact, the 2012 report praised the "NBA’s continued commitment to racial equality," despite the overwhelming evidence of significant racial inequality?

Interestingly, the "Institute of Diversity and Ethics in Sport" was headed until recently by two white male admininstrators (see photo below). What grade would they give their own organization
for the category of "Top Management" (one of the categories they use
for the NBA and WNBA)? Wouldn't this be a letter grade of F for being 100% white and male?

Friday, June 29, 2012

With Our Abundance of Natural Gas, Let's Export

The EIA reported today that U.S. natural gas production set new monthly record highs in April for gross withdrawals and marketed production, on a 12-month moving average basis (to smooth out monthly variations), see chart above. Thanks to fracking technology and the shale revolution, America now has such an abundance of natural gas, that it makes economic sense for producers to export gas overseas to Europe and Japan, where prices are typically 5-6 times higher than in the U.S.

With the EIA announcement that domestic natural gas reached a new record high, it was timely that Reps. Bill Johnson (R-Marietta) and Tim Ryan (D-Youngstown) sent a bipartisan letter today, cosigned by 21 Members of Congress, to the Secretary of Energy, Steven Chu, calling for policies that would allow U.S. companies to export natural gas and capture a greater share of the global market for natural gas.

Rep. Johnson said, “Right now, Eastern Ohio is seeing the benefits of natural gas development in the Marcellus and Utica shale plays. But it’s time to realize the full potential of this abundant natural resource, and one way to do that is to start exporting it onto the global marketplace. In fact, according to the U.S. International Trade Association, America could see tens of thousands of new jobs created by allowing this abundant natural resource to be exported. Eastern Ohio has the supply, the technological know-how, and a workforce that’s ready to make this happen."

Johnson added, “Allowing American workers to increase our share of the global market for natural gas is an important part of a true ‘all of the above’ approach to energy development that will make America more energy independent, lower the price of energy, and create much-needed jobs. With unemployment above 8% for the past 40 months, it’s important to develop these abundant natural resources to once again bring exceptionalism back to America.”

Rep. Ryan said, “Natural gas has become a key element in the economic turnaround in my district and throughout Ohio, Pennsylvania and West Virginia. We need to support the businesses that are creating quality jobs by allowing them to compete in the global market, and I hope that Secretary Chu will speed up the approval process in a responsible way to permit producers of LNG to export their products to consumers around the world."

Where's the Outrage for Evil Ticketmaster?

"Ticket scalpers" have a tough time. Everybody seems to despise them: musicians, music and sports fans, promoters, sports teams, and concert venues. "Scalpers" are accused of "cheating" people (see sign above), and musicians like LCD Soundsytem call them really, really bad names like "pieces of f***ing shit," "scalping scumf***s and "shitbags." Wow! You would think they were talking about Osama bin Laden, Hitler, or Jerry Sandusky, not a seller engaged in a voluntary, market transaction with a willing buyer, sometimes for a ticket selling below face value!

Well, how about some outrage for the really, really, truly evil bad guys and ticket-selling monsters - Ticketmaster. Have you checked their fees and paperless ticket restriction lately? If not, here's what the evil, anti-competitive, anti-fan ticket monopolist is doing, using the Eric Church concert in October at the Joe Louis Arena as an example:

Let's summarize:

1. If you purchase a $47.50 general admission "paperless ticket," you're hit with a whopping $11.30 ticket charge, which is 24% of the ticket price (see above)!

2. If you purchase a $37.50 reserved seat in the "upper bowl," you'll pay a 29% ticket fee, or $11.05 (see above).

3. Tickets for the Eric Church concert are "paperless," and for this show they are NON-TRANSFERABLE, and the ORIGINAL TICKET PURCHASER MUST ATTEND THE EVENT. In other words, you can NOT sell the ticket after it's purchased, even for a price below face value. And if you get sick or can't attend the concert, too bad, there's NO way to transfer the ticket. You can't even give it away. Moving towards "paperless ticketing" is Ticketmonster's strategy of trying to kill the secondary market, which then creates a new set of anti-consumer, anti-fan outcomes by taking away a fan's property rights to his or her ticket, and creating fan inconveniences, see next item.

4. If you attend the concert with your friends and you bought four tickets together, you MUST all enter the venue at the same time as a group with the person who purchased the ticket, who must present a photo I.D. and the credit card used to purchase the tickets.

Is there anything that can be done to challenge the evil Ticketmonster?

Well, comedian Louis C.K. is going up against both Ticketmonster and ticket scalpers by selling tickets directly on his website for $45 to his upcoming national tour, here's from a long rambling message on his website:

"Tickets across the board, everywhere, are 45 dollars. That's what you'll
actually pay. In every case, that will be less than anyone has actually
paid to see me (after ticket charges) in about two years and in most
cases it's about half of what you paid last year.

Making my shows affordable has always been my goal but two things have
always worked against that. High ticket charges and ticket re-sellers
marking up the prices. Some ticketing services charge more than 40% over
the ticket price and, ironically, the lower I've made my ticket prices,
the more scalpers have bought them up, so the more fans have paid for a
lot of my tickets.

By selling the tickets exclusively on my site, I've cut the ticket
charges way down and absorbed them into the ticket price. To buy a
ticket, you join NOTHING. Just use your credit card and buy the damn
thing.

Also, you'll see that if you try to sell the ticket anywhere for
anything above the original price, we have the right to cancel your
ticket (and refund your money). this is something I intend to enforce.
There are some other rules you may find annoying but they are meant to
prevent someone who has no intention of seeing the show from buying the
ticket and just flipping it for twice the price from a thousand miles
away."

MP: It's not clear yet how he'll prevent tickets from being sold above face value, but at least Louis C.K. has cut out the ticket monopolist by selling tickets directly to his fans, and we can expect to see more of that in the future. Charging service fees of 20-30-40% to process a ticket order that is both paper-less and now almost cost-less using online technology seems to be clearly unsustainable. Hopefully, fans will start to re-direct their frustration over high ticket prices from secondary markets (which generate huge benefits for both ticket sellers and buyers) towards the evil monopolist - Ticketmonster!

Bloomberg News -- "Target hasn't opened a single store in Canada, and already
Wal-Mart wants Canadians to know it's the price leader north
of the border. Wal-Mart Canada will lower prices on 10,000
products in July. The company called the sale, which it says will save
customers $50 million next month, the biggest in Wal-Mart's 18-year
history in Canada.

While Target's Canada debut is at least six months away, part of
Wal-Mart's strategy is to get out front in the brand messaging wars. Minneapolis-based Target plans to open more than 100 stores in Canada
starting next year. Last year, Target paid $1.85 billion to acquire the
leases of as many as 220 Zellers stores, a Canadian discounter, with
plans to convert many of them into Targets."

MP: Some of the economic lessons here are: 1) consumer sovereignty, 2) intense "cutthroat" competition is good for consumers, 3) Walmart's everyday low prices provide obvious direct benefits and cost-savings to its own customers, but also provide indirect benefits and cost-savings to all of those customers who may never shop at Walmart and only shop at Target or other retailers. Reason? Walmart's low prices provide a powerful form of price discipline on all of its competitors, who would be able to charge higher prices in the absence of Walmart.

Bottom Line: Walmart is the consumer's BFF, even for those consumers who NEVER shop there.

Cartoon of the Day

More Signs of a Real Estate Recovery

More reports below on strong double-digit gains in home sales for May as high as 32% for Maine, and some increases in median home prices, including a 22% gain in Miami condo prices in May compared to last year.

1. Utah: May sales up 11.8% from May 2011; 12th month in a row that home sales have grown year-over-year. Realtors also say this is the strongest January-to-May sales period since 2007.

2. Maine: May sales up 32% from May 2011; and median sales price up by 7.4%.

3. Connecticut: May sales up 12.3% from May 2011; median sales price up 2.4%.

4. New Hampshire: May sales up 27.7% from May 2011; median sales price down by 2.4%.

5. Rhode Island: May sales up by 15% from May 2011; median sales price down 7%.

6. Wisconsin: May sales up by 18.9% from May 2011, the 11th consecutive
month of a double-digit increase from the same month a year earlier; median sales price up by 1.5%. Through May, sales for 2012 are up 20.2% from the same period last year.

7. Miami: May sales up by 14% from May 2011, median sales price for single family
homes up by 6%, condo prices by 22%.

In another positive indicator for the real estate industry, the chart below shows the "S&P Homebuilders SPDR" (XHB),
an ETF that replicates the homebuilding portion of the
S&P Total Markets Index (blue line), compared to the S&P500
Index (red line) over the last six months. While the overall stock
market (S&P 500) has increased by about 5% since January, the ETF of homebuilders' stocks has increased by 20%.

Foreign Workers Help Fill Jobs in ND Oil Patch

WILLISTON, N.D.--"With the nearby oil boom draining this city of many
of its service workers, businesses here are relying on a
cultural-exchange program for foreign college students to keep the local
economy humming.

More than 500 foreign students—from Thailand, Jamaica and about a
dozen other countries—are staffing nearly every hotel, car wash and
fast-food place in town, tending to the troops of roughnecks from the
oilfields.

"Without them, I don't know what we'd do," said Ward Koeser, mayor of
this city of 16,000, citing long lines, slow service and limited hours
at stores and restaurants before the students arrived."

Williston and the surrounding area face a rare problem in today's
economy: more jobs than workers. As of May, the county surrounding Williston had nearly 1,700 unfilled
jobs and 240 people unemployed. The unemployment rate is 0.7%. Since 2006, when new drilling
technology opened up the region's shale reserve to oil production, the
northwest corner of North Dakota has added 30,000 jobs—a 136% increase.
Those jobs were filled by many former service workers in Williston—along
with mostly male workers who flocked to the oil jobs from across the
country."

Thursday, June 28, 2012

Energy Milestone: Natural Gas and Coal Had the Same Share of Electricity Generation in April

The Energy Information Administration reported this week that for the first time since it began keeping monthly records, "natural gas and coal had the same share of total net generation of electricity at 32% during April 2012 (see chart above)."

This is one more reason that America's natural gas windfall represents "one of the most important developments for the economy in the last 60 years," as I reported earlier today. In the process of creating thousands of jobs and saving natural gas
customers billions of dollars, the shale revolution has also
significantly reduced carbon emissions as electricity producers have
switched from dirty coal to clean, cheap natural gas. It's really no exaggeration to say that the United States really managed to "hit the energy jackpot" with shale gas.

U.S. Housing Market: The Evidence Continues to Mount That We're Past the Bottom

The Economist -- "In unsurprising but good news, Case-Shiller reported new home price data this week that showed a definitive upward move in markets across the country. From March to April, Case-Shiller's 10- and 20-city indexes rose 0.7%, seasonally adjusted. All but three of the tracked markets saw month-on-month increases. Half of tracked cities notched year-on-year price increases in April.

Price rises have looked imminent for some time. Sales figures have been trending upward and inventory numbers are at remarkably low levels. Rents have also been increasing, making home purchases look ever more attractive. There is still an ample stock of distressed and bank-owned homes to work off, but America seems to have achieved bottoms for both sales and prices. Housing markets have adjusted.

This turning point could be a source of considerable strength for the American economy. Rising prices should have a direct wealth effect for owners and should sharply limit new defaults and foreclosures. As a result, mortgage lending should begin to look much more attractive. A return to something like normal lending conditions could turn fledgling increases in sales and construction into strong increases, boosting GDP and construction employment."MP: The top chart above shows the monthly FHFA House Price Index (HPI) through April, based on the purchase prices of houses financed with Fannie Mae or Freddie Mac mortgages. The April index was 3% above its year-ago level, and 3.3% above what is apparently the cyclical low point for the HPI in March of last year. The 3% annual gain in the HPI was the largest yearly increase since November 2006, five and-one-half years ago (see bottom chart).

This FHFA index of national home prices is more comprehensive geographically than the major metro-area based Case-Shiller index, and includes both small cities and major cities like Houston (not one of the 20 metro areas in Case-Shiller), where median home prices in May reached a new record-high level. The HPI is also available now for the month of April, whereas the most recent Case-Shiller index is a three-month average of February-April.

Bottom Line: The evidence continues to mount that we've passed the bottom of the U.S. housing market, as we continue to see strong sales gains for new and existing homes, a two-year high for pending home sales, and gradual increases in home prices. Look for more improvements in the real estate market going forward through the rest of the year.

Natural Gas Windfall is One of The Most Important Economic Developments in the Last 60 Years

On an energy-equivalent basis, natural gas remains 87% cheaper than oil, equivalent to a price of $14 per barrel.

Martin Neil Baily, senior fellow in Economic Studies at the Brookings Institution, and Philip Verleger, president of PKVerleger and visiting fellow at the Peterson Institute for International Economics, emphasize in their recent CNN article that America "hit the energy jackpot" with oil and shale gas, making it "one of the most important developments for the U.S. economy in the last 60 years." Here are some excerpts:

"Shale extraction... is pushing down energy prices and creating many new opportunities for jobs, investments and manufacturing.

And
the new innovations are unique to the United Sates. Although other
countries will exploit shale, none will come close to the low costs in
the U.S. That's because the U.S. has a unique governmental structure in
which many powers remain with the states, along with a very competitive
market for the product, as opposed to the monopolies and oligopolies
that control the market in almost every other country.

While it may sound like the latest energy fad, the shale boom
is for real and a serious game changer because of its size and
potential longevity. Based on equivalent amounts of energy, natural gas
has been about half as expensive as oil for many years (MP: See chart above, gas has actually been closer to 80% less expensive since the use of fracking increased significantly in 2008-2009).

Cheap gas may not be enough to offset the drag of a slowing global
economy this year, but it will boost long-term investment, help the
beleaguered manufacturing sector and increase exports.

Building petrochemical plants could suddenly become attractive in the United States. Manufacturers will "reshore"
production to take advantage of low natural gas and electricity prices.
Energy costs will be lower for a long time, giving a competitive
advantage to companies that invest in America, and also helping American
consumers who get hit hard when energy prices spike.

After years of bad economic news, the natural gas windfall is very good news. Let's make the most of it."

Venture Capitalists: Doing More with Less

The destruction of farm jobs, and doing "more with less," since the 1700s has brought about economic prosperity.

In the Freeman, economist Steve Horwitz responds to the Doonesbury cartoon below and comes to the defense of maligned venture capitalists like Bain, who generate huge benefits for society by "doing more with less":

"Innovation enabled us to create more food with less work (see chart above), freeing
humans to create other valued products through other jobs. This
destruction of jobs and reallocation of labor and capital are the true
sources of prosperity. Bain Capital's attempts to allocate resources more
effectively can lead to big-time profit for it and its investors—and increased prosperity for everyone else even as jobs are destroyed in the process.

Government’s attempts to create jobs do not do more with
less. On the contrary, politicians get votes by creating as many jobs as
possible, and they have no incentive to care about the price tag or
what if anything those jobs produce. In other words, politicians will
tend to do less with more. That’s called waste.

Profits guide firms like Bain to meet people’s needs. This can lead to a
growth in employment for some companies and a drop for others. But
ultimately it means that resources are better allocated, increasing
prosperity for all. When more is done with less throughout a market
economy, billions of people are made better off, which only shows that
firms like Bain are not vultures preying on the dead, but bees bringing
the pollen of life from plant to plant. They are about profits and people."

$29,409 Per Student Cost of D.C. Public Schools Puts Them In Elite Group, But Without the Results

Judging by the expenditures per student of almost $30,000 (Andrew Coulson at Cato crunches the numbers), the "pricy" District of Columbia public schools are among the most elite of all of the D.C.-area schools, see the chart above. The $29,409 per-student educational price tag for D.C. schools is just slightly below two of the area's most prestigious private schools - Georgetown Prep ($29,625), founded in 1789 as the nation's oldest Jesuit school, and Sidwell Friends School ($33,000), the "school of choice" for President Obama's daughters. It's also almost twice as expensive as Bethesda-based St. John's College High School ($15,950) and almost three times as expensive as D.C.'s Archbishop Carroll ($10,500).

However, judging by the graduation rate of D.C.'s public high schools of only 58.6% for the Class of 2011 (compared to the national average of 75.5% for public schools), District taxpayers might wonder why they're getting such poor results from such an elite level of spending. For every 100 students who graduated from D.C. high schools in 2011, there were 71 of their freshman classmates who either dropped out or didn't graduate on time. At one of D.C.'s worst-performing high schools - Cardozo Senior High - fewer than 40% of its students graduated in 2011, which means that for every 100 students who graduated, there were 154 of their freshman classmates who did not graduate.

It wouldn't be so troubling that the cost to educate students in D.C. school is comparable to the tuition of some of the most elite, D.C.-area private-schools, and 2-3 times the tuition of some of the area's private Catholic high schools, if the graduation rates at D.C. public schools weren't so miserably low. But when public school spending is so high in the District of Columbia (more than total state spending in both North Dakota and South Dakota), and the results are so miserable, you would think there would be more political support for alternative approaches like the "D.C. Opportunity Scholarship Program," which President Obama and many Democrats oppose. Obama tried to kill the program by de-funding it, but the program was rescued by Republicans John Boehner and Joe Lieberman. Unfortunately, the president and Democrats are "more interested in doing right by teachers unions than doing right by ghetto kids confined to failing schools," as Jason Riley pointed out in the WSJ.

Bottom Line: Russ Roberts reminds us that the most costly goods and services are often the ones that politicians decide should be "free," like education, health care and housing. The $29,409 per-pupil cost for "free" public education in D.C. is a perfect example, and the future trend seems clear: spending on public schools will continue to increase and the academic results will continue to decline.

Wednesday, June 27, 2012

Cartoon of the Day

Real Estate Recovery Watch

1. "Pending home sales bounced back in May,
matching the highest level in the past two years, and are well above
year-ago levels, according to the National Association of Realtors. Both monthly and annual gains were seen in every region.

The Pending Home Sales Index,
a forward-looking indicator based on contract signings, rose 5.9
percent to 101.1 in May from 95.5 in April and is 13.3 percent above May
2011 when it was 89.2. The data reflect contracts but not closings. The index also reached 101.1 in March, which is the highest level
since April 2010 when buyers were rushing to beat the deadline for the
home buyer tax credit."

Lawrence Yun,
NAR chief economist, said longer term comparisons are more relevant.
“The housing market is clearly superior this year compared with the past
four years. The latest increase in home contract signings marks 13
consecutive months of year-over-year gains,” he said. “Actual closings
for existing-home sales have been notably higher since the beginning of
the year and we’re on track to see a 9 to 10 percent improvement in
total sales for 2012.”

2. DQ News --"The median price paid for a home in the Phoenix area last month rose
to a 41-month high, increasing on a year-over-year basis for the sixth
month in a row. The region’s overall sales trended slightly higher as
mid- to high-end activity jumped again, compensating for a sharp ongoing
slide in sales of lower-cost homes, especially foreclosures. reported.

In May, buyers paid a median $150,000 for all new and resale
houses and condos sold in the Phoneix metro
area. It was the highest median for any month since December 2008, when
the median was $154,000. Last month’s median rose 5.6 percent from April
and rose 25.0 percent from May 2011. The median's 25.0 percent year-over-year increase in May followed
annual gains of 18.3 percent in April, 13.8 percent in March, and 7.5
percent in each of the prior three months."

Markets In Everything: Bone Marrow, Finally

MSNBC -- "Certain bone marrow donors could soon be compensated for their life-saving stem cells after federal officials declined to take the matter to the U.S. Supreme Court, allowing a lower court order to become law.
At least one agency, MoreMarrowDonors.org, hopes to begin a pilot program offering up to $3,000 in scholarships, housing vouchers or charity donations -- but not cash -- in exchange for matching donations of marrow cells derived from blood.

“This decision is a total game-changer,” said Jeff Rowes, a senior attorney with the Institute for Justice, which filed the lawsuit three years ago on behalf of cancer victims and others seeking bone marrow matches. “Any donor, any doctor, any patient across the country can use compensation in order to get bone marrow donors.”

That may be the effect of the decision by U.S. Attorney General Eric Holder to forgo a high court review of a 9th U.S. Circuit Court of Appeals ruling that certain kinds of bone marrow donations are exempt from federal rules banning compensation.
Under the ruling, donors who provide marrow cells through a process similar to blood donation, called peripheral blood stem cell apheresis, can be compensated because those cells are no longer regarded as organs or organ parts as defined in the National Organ Transplant Act.

About 10,000 people need bone marrow transplants each year, but only
about half receive them. The Institute for
Justice estimates that about 3,000 die waiting for matches."

See previous CD posts on legalizing bone marrow compensation here and here. Here's a press release from the Institute for Justice.

N. Dakota Leads the Country in Q1 Income Growth

"State personal income growth accelerated to 0.8% in the first
quarter of 2012, from 0.4% percent in the fourth quarter of 2011. Personal income rose in 47 of the 50 states, fell in Kansas
and Mississippi, and was unchanged in Oklahoma. The percent change
across states ranged from 2.3% in North Dakota to -0.3% in
Mississippi."

MP: Once again, the energy-rich, economic miracle state of North Dakota led the country on a key economic measure, this time with the highest personal income growth in the January to March period of 2.3% (9.2% at an annual rate), almost three times the national average of 0.4%. No. 1 North Dakota's income growth in Q1 was a full one-half percent above second place Nebraska, which had 1.8% income growth.

Tuesday, June 26, 2012

Markets in Everything: Digital Hitchhiking App

There's an interesting new ridesharing app available through Apple called SideCar, which connects drivers and passengers, kind of like a modern form of hitchhiking in the digital age:

"SideCar is a community-based, real-time ridesharing marketplace. Our
proprietary technology, deployed via a user-friendly mobile app,
instantly connects people with extra space in their cars to those who
need to get from one place to another. Spontaneous carpools. SideCar is
an easy, safe, reliable, and completely donation-based way to get from
here to there. Not to mention fun!

SideCar is neither a taxi nor limo. It’s a ride-matching app that
connects people who need rides with community drivers who can give them
rides on the fly. All payments are completely voluntary and are handled
via a cashless, donation-based system between smartphones."

Note: It's only available right now in San Francisco, with plans for expansion to other parts of the country.

No Peak Oil in Sight: We've Got an Unprecedented Upsurge in Global Oil Production Underway

The global oil boom underway represents the most significant increase in any decade since the 1980s.

In the tradition of resource economist Julian Simon, here are some of the conclusions and predictions from new research just published by Harvard Research Fellow Leonardo Maugeri, titled "Oil: The Next Revolution;
The Unprecedented Upsurge of Oil Production
Capacity""

1. Contrary to what most people believe, oil is not in short supply and oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

2. The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example. Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

3. In the aggregate, conventional oil production is also growing throughout the world, although some areas (e.g. the North Sea), face an apparently irreversible decline of the production capacity. In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

4. Over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.

5. Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production of more than 49 million barrels per day (mbd) of oil is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

6. After adjusting this substantial figure considering the risk factors affecting the actual accomplishment of the projects on a country-by-country basis, the additional production that could come by 2020 is about 29 mbd. Factoring in depletion rates of currently producing oilfields and their “reserve growth,” the net additional production capacity by 2020 could be 17.6 mbd, yielding a world oil production capacity of 110.6 mbd by that date – as shown in Figure 1 above. This would represent the most significant increase in any decade since the 1980s.

Markets in Everything: Solar Coke Bottle Lights

Used plastic Coke bottles are now transforming the rural neighborhoods of Manila, Philippines. Homes there are often built so close to each other that they have no windows or natural light, but now affordable "solar Coke bottle lights" are being installed in roofs to provide an overhead "solar light bulb" inside the home. With electricity unaffordable or unavailable for many Philippine families, they used to have to work, do chores, and eat in near darkness. Now there is light, thanks to human ingenuity and the recycling of used plastic Coke bottles. Take a look.

Monday, June 25, 2012

Some Positive Signs in Today's New Home Sales Report for a Significantly Improving Housing Market

One interesting data point from today's Census report on new home sales is the very low inventory level of homes for sale: there is currently only a 4.72 months' supply of new homes for sale at the current sales pace, which is calculated as the ratio of new houses for sale at the end of the month (145,000) to the number of homes sold in May (30,750 at a seasonally adjusted rate). The inventory of new homes relative to demand hasn't been that low since October 2005, more than six years ago (see chart above), and is an indication that the balance between the supply and demand for new homes has returned to a more typical level than the double-digit months' supply levels back in 2008 and 2009. In fact, the average inventory since 1963 is a 6.2 month supply of new homes, so the current level of only 4.72 months' supply is below historical norms, and reflects a very low inventory level of new homes in relation to the rising demand.

"The lack of availability of completed new homes is likely holding back sales, which will improve even more as builders finish some of the homes now under construction. We see the same phenomenon in the existing home market, where a lack of homes on the MLS is temporarily holding back sales. The road ahead looks better than it has in years. Look for housing to continue to move higher, and to add to GDP for the fifth consecutive quarter."

Scott Grannis also reports today on new home sales in May, which were up by almost 20% from a year ago and reached the highest sales level in more than two years, and new home starts, which were up in May by more than 26% from last year, and comments:

"To be sure, the level of sales and starts remains very depressed from an
historical perspective. But from an economist's perspective, it's not
the level that is important, it is the change on the margin. Correctly viewed, there has been a very significant improvement in the housing market over the past few years."

It's
been well-documented now that falling prices for natural gas (see chart
above) and the resulting drop in utility rates have saved consumers
billions of dollars (see CD posts here and here).

A new study by researchers at Yale University, "The Arithmetic of Shale Gas," provides some additional evidence of the consumer benefits of shale gas using a cost-benefit approach (where consumers include residential, industrial, commercial and utilities) here's an excerpt:

"The Henry Hub spot price in 2008 was $7.97 per
mcf and in 2011 was $3.95 per mcf (see chart above) so that the difference in price over three successive
years was $4.02 per mcf. Gas production in 2008 was 25.6 tcf so that the
surplus to consumers by the price reduction from shale gas equaled
$102.9 billion.

This
very large amount of consumer gain—over $100 billion—from the new
technology induced price reduction in gas is the elephant in the room.
It comprised a substantial majority of total expenditures on this fuel
nationwide. In past years those expenditures were limited by the higher
costs of production of gas produced from vertical wells. These were in
part producer surplus but most were the costs of sustaining well
operations in the old technology. Even so it is startling to acknowledge
that consumer benefits from the technology of shale gas drilling and
new gas production can be expected to exceed $100 billion per year, year
in and year out as long as present production rates are maintained."

The
authors then account for the possible environmental costs to society
and compare that to the consumer-savings of $100 billion per year:

"How
then do we extrapolate individual disaster scenarios across an entire
industry to determine the social cost of possible contamination from
fracking in order to deduct it from the consumer surplus of $100 billion
for each year? We consider that the reported instances of contamination
from fracking relate, at most, to an extremely limited minority over
hundreds of thousands of wells. Assuming the
worst—that the accidents occur in one year; that the cleanup requires a
new water well at $5,000; and that one hundred spills occur at $2.5
million per spill given then that the industry drills 10,000 new wells
per year. The cost of frackwater contamination is $250 million. Economic
benefits, as estimated in as limited methodology as is reasonable,
exceed costs to the community by 400-to-1."

And they also estimate the consumer benefits of switching from oil to natural gas:

Replacing
1.0 million bbls per day of crude oil with the 6 billion cubic feet
(bcf”) equivalent of natural gas, would generate approximately $25.6
billion ($70/bbl*1 million bbls*365 days) of consumer surplus for the US
economy over one year."

Note: There are also gains to shale gas producers from increased production, and while those are less than the gains to gas consumers, they are significant and are estimated be multi-billions of dollars per year.

Here's a Forbes article that summarizes some of the key findings of the Yale study.

Sunday, June 24, 2012

Law Grads Face Brutal Job Market

"Members of the law-school class of 2011 had little better than a
50-50 shot of landing a job as a lawyer within nine months of receiving a
degree, according to a Wall Street Journal analysis of new data that
provides the most detailed picture yet of the grim market for law jobs.

Under pressure from disillusioned graduates and some professors, the
American Bar Association for the first time released a tally of the
previous year's graduates who have secured full-time, permanent jobs as
lawyers. Until recently, the ABA required law schools to report only
general data about how their graduates fared, such as how many were
employed full-time or part-time in any kind of job, whether or not it
required a law degree.

The numbers suggest the job market for law grads is worse than
previously thought. Nationwide, only 55% of the class of 2011 had
full-time, long-term jobs that required a law degree nine months after
graduation. The ABA defines "long-term" jobs as those that don't have a
term of less than one year."

MP: An interactive graphic accompanies the article, and reveals that graduates of even some of the top law schools are having a hard time finding full-time work in jobs that require a law degree: less than 66% of the graduates from Georgetown Law (tuition of $50,000 per year) and only about 75% of the graduates from University of Michigan are employed in jobs that require a J.D. degree.

Interestingly, the word must be getting out that law school graduates can't find work - the number of students taking the LSAT this year fell to an 11-year low, see chart below.

J2LYK There's a Texting/SMS Language Revolution

Back in 2009, a CD post featured Charles Platt, former senior writer for Wired Magazine, who got hired at an Arizona Wal-Mart and then blogged and wrote about his experience. Today he sends along this provocative guest post for CD:

Phone messaging and Facebook are being blamed for degrading the English language, but in reality, language evolves to satisfy the needs of people who employ it, and the result is enrichment with new terms that serve a useful purpose. After online media encouraged acronyms as substitutes for frequently used phrases (such as BTW, OMG, and the ubiquitous LOL), the limitations of a phone keypad spawned abbreviations that are showing signs of permanence, even including txt for text and k for ok (Netlingo hosts a list of more than 2,000 chat acronyms and text message abbreviations, while Wikipedia provides a thorough history and analysis of SMS language).

The international reach of the web means that the neologisms and (especially) emoticons are now functioning as the beginnings of a world language. Esperanto was supposed to achieve this, but failed miserably, perhaps because it was created by a committee of experts. Texting and messaging are developing from the grass roots up, and thus are more durable, regardless of what language professors might prefer. I see this as something to celebrate, but of course YMMV.

Amazing Illusions: Two of the Best Ever

It's been awhile since I've featured an illusion, the last one was the peacock illusion above, which I thought was one of the best ever. Both birds are exactly the same color, but you'll never convince your mind of that, see it here without the background.

Here's a new one that might be even better, courtesy of Alex Tabbarok, where again you can't convince your mind that the two boxes are the same color.

Saturday, June 23, 2012

The Bad Grammar Epidemic

"Managers are fighting an epidemic of grammar gaffes in the workplace.
Many of them attribute slipping skills to the informality of email,
texting and Twitter where slang and shortcuts are common. Such looseness
with language can create bad impressions with clients, ruin marketing
materials and cause communications errors, many managers say.

There's no easy fix. Some bosses and co-workers step in to correct
mistakes, while others consult business-grammar guides for help. In a
survey conducted earlier this year, about 45% of 430 employers said they
were increasing employee-training programs to improve employees'
grammar and other skills, according to the Society for Human Resource
Management and AARP."

Where Krugman Went Right: On Housing Policy

Since 1999, when economist Paul Krugman started writing for The New York Times, he has been drawing the criticism of free market-oriented economists (and recently the president of Estonia) for glaring deficiencies in economic analysis and for writing what amounts to “fiction” (economist and Estonian expert Steve Hanke’s word to describe Krugman’s trashing of Estonia’s recent robust economic growth and counter Keynesian fiscal reforms).

The Krugman-Estonia kerfuffle raises an interesting question: Has Krugman ever sided with free market economists against government activism in his Times forum?

In Back from Serfdom, my Atlanta colleague Robert Dell quotes a Krugman column from June 2008 to support the case for termination of government affordable housing policies. The normally predictably partisan pundit Krugman appears here to be channeling AEI's Peter Wallison:

“Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?

Listening to politicians, you’d think that every family should own its home—in fact, that you’re not a real American unless you’re a homeowner. . . . and that is reflected
in U.S. policy (MP: Which drove homeownership to unsustainable levels and created the housing bubble, see chart above). Because the I.R.S. lets you deduct mortgage interest
from your taxable income but doesn’t let you deduct rent, the federal
tax system provides an enormous subsidy to owner-occupied housing. On
top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac
and the Federal Home Loan Banks — provide cheap financing for home
buyers; investors who want to provide rental housing are on their own. In effect, U.S. policy is based on the premise that everyone should be a homeowner.

But homeownership isn’t for everyone. In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners.”

We can only hope Krugman will direct a future critical blast toward the Government National Mortgage Association (Ginnie Mae) for continuing to promote home ownership on its web site.

Friday, June 22, 2012

The Coming Revolution in Information Technology

We are on the cusp of a revolution in information technology that
will be even larger than the one that's taken place over the past 40
years. Evidence of this transformation is emerging in what's known as
direct-digital manufacturing, an innovation that could lead to the
"desktop" printing of entire products from automobiles to washing
machines.

Some products developed from three-dimensional
computerized manufacturing — such as patient-specific implants for hip
joints or teeth, and lighter and stronger aircraft parts — are being
made from computer-engineered materials that did not exist a few years
ago.

Smart manufacturing, in which the science of emerging
materials revolutionizes the very fabrication of physical products, has
extraordinary economic implications for the United States, which is at
the epicenter of digital innovation.

To grasp the magnitude of the changes taking place, consider that, in
the last three decades, computing speeds have risen 200,000-fold, while
costs have dropped 10,000-fold. In 1980, it cost $10,000 for the
hardware to store a single book. Today it costs one penny. That's why a
Kindle can store thousands of books. And the cost of storing books and
digital information is still collapsing.

We're entering a new age
of super-computing, providing cheap information and processing power to
nearly everyone. But that assumes that our electricity production keeps
pace with the rising energy demands of the new information-intensive
technologies. Those states that fail to increase electrical generating
capacity will pay a huge price for such shortsightedness in terms of
lost economic opportunities and jobs. It's time to start modernizing the
electrical infrastructure now to prepare for an exciting digital
future.

America's Manufacturing Renaissance

Intro: There were three related and important manufacturing trends that emerged in 2011:

a) American manufacturing remained at the
forefront of the United States’ economic expansion for the second year
in a row and re-established itself as one of the economy’s strongest
sectors;

b) An erosion of China’s manufacturing cost
advantages, especially for wages, started to bring manufacturing
production back to the United States from China and other low-wage
countries, reversing a decade-long trend of outsourcing production
overseas; and,

c) An abundance of domestic shale-based
natural gas brought gas prices to record low levels and sparked a new
boom in the United States for energy-intensive manufacturing.

As a result of these trends, American
manufacturing in 2011 had its best year in at least a generation by all
relevant measures of economic performance: profits, output growth, and
employment gains. In fact, it’s possible that we will look back on 2011
as a watershed year that marked the beginning of a great manufacturing
renaissance in America.

Conclusion:

Putting it all together, the U.S. manufacturing sector had one of its
best years ever in 2011, reflecting a new manufacturing rebound that is
now underway and is expected to accelerate in the years ahead. Flush
with record-level profits, the manufacturing sector has never been
financially healthier than it is today, and the future of American
manufacturing has never looked brighter. After years of negative reports
about the decline of American manufacturing, it’s now time to recognize
and celebrate a great turning point, as America’s industrial sector
moves in a new direction that many are now calling a “manufacturing
renaissance.”